Amid the scale of the human catastrophe, any consideration of the economic
consequences of the Japanese earthquake might seem faintly distasteful if
not even perverse.

Yet any disaster on this scale also has the capacity for extreme long-term economic damage and Japan is going to require careful management over the months ahead.

The immediate impact will almost certainly be to push Japan back into technical recession.

Fortunately, the area most directly affected is quite sparsely populated by Japanese standards and in economic terms not particularly important. The region hit by the Kobe earthquake in 1995 was in this regard of considerably more consequence.

Nonetheless, the effect of the quake has been to bring economic activity to a grinding halt, rather in the way September 11, a comparatively localised event, managed to create a temporary hiatus across the entire US economy.

All car production and some electronic industry output has been suspended, in part to avoid putting further pressure on an already badly damaged power network.

A major nuclear disaster would multiply the consequences several times over, while even a temporary outage of nuclear capacity will severely stretch this energy-poor economy.

All the same, the history of such disasters is that after a brief lull, economic activity tends to bounce back, boosted by heavy spending on renewal.

The Bank of Japan is today expected to announce a major new programme of quantitative easing in an effort to support demand and confidence.

With Japan’s public debt already well in excess of 200 per cent of Gross Domestic Product, the scope for spending on reconstruction might seem limited.

But to think this is to misunderstand the nature of Japanese debt markets, where nearly all government bonds are bought by domestic investors.

Substantial repatriation of overseas money ought to ensure that bond markets remain compliant. In theory, then, the medium-term impact ought to be marginal and possibly even mildly positive. Unfortunately, there’s a world of difference between what ought to happen and what will.

There are two big unknowables. One is that there is already a heady mix of negatives: from high oil prices and turmoil in the Middle East to the eurozone crisis and a slowing Chinese economy. Japan’s tragedy might be the final straw for already fragile confidence.

The other is that the very long-term economic consequences of such disasters are completely unpredictable.

The extreme monetary and fiscal stimulus ordered in response to September 11 arguably lit a fuse that led some six years later to the credit crunch.

What can be said with certainty is that the world economy needed another disaster like a hole in the head. The best that can be said for this one is that unlike most economic disasters, at least it wasn’t man-made.